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Loans with 204% interest OK by Arizona House
Payday loans bill advances; Senate next, final hurdle

PHOENIX - Without a vote to spare, the state House voted Monday, March 21, to allow lenders to charge interest rates up to 204 percent.

Senate Bill 1316 got the bare minimum 31 votes required for final House approval. Every Democrat voted against the measure, joined by Republicans Chris Ackerley of Sahuarita, Brenda Barton of Payson, Kate Brophy McGee of Phoenix and Tony Riveo of Peoria.

But the industry lobbyists who have pushed heavily for this law since voters wiped out payday loans still have a major hurdle.

Identical legislation was killed earlier this year in a Senate committee.

By tacking this language onto an unrelated bill that already has been approved by the Senate, supporters bypass that committee. But the now-amended measure still has to gain approval of the full Senate, a hurdle which could prove difficult to overcome.

The legislation permits companies to lend up to $2,500 for up to two years at a monthly interest rate of 15 percent. But that is only if there is collateral; if not, the monthly rate goes up to 17 percent.

What that means is that someone who borrows $2,500 for the full two years would end up repaying more than $10,000 when interest charges are tacked on.

Barton, in parting ways with other Republicans, said she had been lobbied by those who insisted these loans are the only options for people without credit history to get quick cash. “It is not true,’’ she told her colleagues.

For example, she said credit unions have been offering “payday alternatives,’’ referring to the payday loans that voters made illegal. She said these carry annual interest rates of just 13.9 percent. And Barton said various faith-based organizations offer loans in emergency and crisis situations.

“You have not been given all the information,’’ Barton said.

That also was the conclusion of Rep. Stefanie Mach, D-Tucson.

“There are people who loan who aren’t as predatory,’’ she said.

Rep. Jay Lawrence, R-Scottsdale, disagreed, saying the alternatives are not realistic.

“They want a credit report,’’ he said. “They won’t provide the money immediately.’’

But Rep. Bruce Wheeler, D-Tucson, suggested that would not be an issue if Congress were to approve truly comprehensive health care coverage so people are not “forced into debt.’’

Rep. Reginald Bolding, D-Laveen, chided colleagues for approving the exception to state laws which generally limit interest rates on loans to no more than 36 percent a year.

“The role of government is to be the last line of defense, to be there to support individuals who are having a hard time, not to work to build wealth on the backs of people in poverty,’’ he said. “We should be ashamed of ourselves, each and every single one of us.’’

Bolding said if lawmakers are worried about poor people having more options to borrow “then we need to step up.’’

Monday’s debate also included suggestions of fraud.

Several lawmakers told of getting boxes of letters, purportedly from constituents, urging them to support the measure. But Rep. Diego Espinosa, D-Tolleson, said when he called some of them up, none of them were aware of having signed such documents.

Rep. Rusty Bowers, R-Mesa, conceded the point, saying the box of letters he had received “I think by in large is a fake.’’

Bowers, however, said he subscribes to the viewpoint that these loans provide needed options.

That question of options for borrowers has been thrown around for more than a decade.

In 2000 the industry -- including many of the same companies who now want to offer these loans -- convinced lawmakers to legalize “payday loans’’ in the state. These short-term loans of up to $500 carried interest rates approaching 400 percent.

But legislators, cautious of the special treatment, put in a 10-year limit on the exception to the regular interest cap. Ultimately, they concluded the payday loans were a bad idea and refused to renew them.

In a last-ditch effort, industry lobbyists took their case directly to voters with a $14 million campaign. But Arizonans were not convinced, voted 3-2 in 2008 to kill the plan.

Payday loans became illegal as scheduled in 2010. And the industry has been trying ever since to get them -- or something close to them -- reauthorized.

In a last-minute bid for votes, supporters agreed to have this new form of loans self-destruct in 2036 unless reauthorized at that time.

In discussing the lobbying by the industry, Rep. Debbie McCune Davis, D-Phoenix, pointed out that one of the lobbyists who testified in favor of the measure actually is on probation.

John Rabenold who lobbies for Check ‘n Go, pleaded guilty last year to two charges of failing to report gifts to lawmakers Ohio. That involves paying for lawmakers to see a football game and free meals.

At the time Rabenold was lobbying against Ohio legislation to regulate payday lends which charge interest rates as high as 400 percent a year.

But McCune Davis did not allege Monday that Rabenold had violated any Arizona laws in connection with this bill.

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